Accountable Care Organizations

The Controversy over the Rules of the Game for the Medicare Shared Savings Program

October 16, 2018 9:44 am

I have fond memories of playing basketball in junior high at lunchtime and after school at friends’ homes. For those pickup games, it was assumed that everyone knew and would abide by the rules of the game. But what would happen if there was a fundamental disagreement on the rules? If the disagreement could not be resolved, players would walk off the court and the game would end. 

The Medicare Shared Savings Program (MSSP), the largest Medicare accountable care organization (ACO) program—which currently has 561 ACOs covering 10.5 million Medicare beneficiaries—is embroiled in just such a controversy about one of its “rules of the game”— specifically, how to measure savings achieved by ACOs participating in the MSSP.

Estimates of MSSP ACO Savings

During performance years 2013–15, ACOs in the MSSP generated gross savings of $954 million, but net losses to the Centers for Medicare & Medicaid Services (CMS) amounted to $344.2 million after accounting for shared savings bonuses earned by ACOs. Speaking at the American Hospital Association’s annual meeting in May, CMS Administrator Seema Verma contended that based in part on these reported results, the ACOs that have stuck with upside-only models “are actually increasing Medicare spending” and “are not producing results.”

However, there is disagreement about the amount of savings achieved by ACOs participating in the MSSP. According to a study by Dobson DaVanzo & Associates commissioned by the National Association of ACOs (NAACOS) and released in early September, MSSP ACOs generated gross savings of $1.84 billion during performance years 2013–15—nearly double the CMS estimate—and net savings to CMS of $541.7 million.

What explains these widely differing estimates of savings produced by MSSP ACOs? The core issue is the nature of the benchmark against which actual spending is measured and savings are calculated. 

Methodological Differences

CMS calculates savings based on a benchmarking methodology in which actual spending is compared with targets based on each ACO’s historical spending trended forward using the national average rate of growth in Medicare spending per beneficiary. 

This approach is appealing because it would seem to test whether each ACO is “bending the cost curve.” In simple terms, it addresses the question of how an ACO’s spending has changed compared to the prior year. 

The Dobson DaVanzo & Associates study used a different approach, comparing actual ACO spending versus the spending of a carefully selected comparison group, providers not participating in the ACO program, to account for prevailing trends. The study used a difference-in-differences regression analysis based on Medicare fee-for-service claims data from 2011–15, comparing claims for 100 percent of ACO attributed beneficiaries and a comparison group of roughly 90 percent of Medicare fee-for-service beneficiaries who were eligible to be assigned to an ACO but were not assigned because they did not receive a majority of their care from an ACO—24 to 26 million Medicare beneficiaries per year. This approach addresses the question of how ACOs compare with providers not participating in the ACO program in terms of impact on spending.

Medicare Payment Advisory Commission Analysis

After review of these two different approaches, the Medicare Payment Advisory Commission (MedPAC) concludes in its June 2018 report to Congress that “ACOs may have saved Medicare 1 percent to 2 percent more than indicated by their performance relative to benchmarks.” MedPAC also points out a shortcoming of continued use of the CMS benchmark approach: “If the same approach were taken in subsequent agreement periods, then ACOs would have to continuously improve over their own past performance to achieve savings, which could create diminishing returns for consistently successful ACOs and potentially discourage long-term participation.”

Proposed Rule to Change the MSSP

The debate over the methodology for calculating savings is even more pressing given CMS’s Aug. 9 release of a 607-page proposed rule to change the MSSP, requiring more risk on the part of ACO participants. Among the rule’s many complex changes, it proposes to shorten the amount of time an ACO can remain in the upside-only track to two years, down from the current six years (two three-year agreement periods). 

Such a change will not sit well with most MSSP ACOs. Even before the publication of the proposed rule, NAACOS had been pressing CMS to allow ACOs to remain in the upside-only track for an additional, third agreement period. According to NAACOS, a large majority of the MSSP ACOs in the upside-only track are averse to taking on downside risk. In the spring of 2018, NAACOS surveyed ACOs that are required to move to a two-sided model in 2019. When asked about what they would do as a result of having to assume risk next year, more than 70 percent of the survey respondents said they would likely leave the program.


The controversy over how savings generated by ACOs are calculated is not just an academic, theoretical debate. The very integrity of the MSSP ACO program is at stake. Consideration of taking on downside risk is premature if there is disagreement on the fundamental methodology for calculating savings. Just as players can walk away from a pickup game of basketball if they disagree with the rules of the game, MSSP ACOs can walk away from this voluntary program.

Ken Perez is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.


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